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Our Coming Rentcropper Society

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We are in the midst of a sea change in terms of the relationship of ordinary Americans to the housing market. Policymakers are not only in denial as to its magnitude, but are actively enabling courses of action that are likely to prove destructive.

One of the accidental and fortunate discoveries of the 1930s was that a long-dated mortgage, meaning 15 to 30 years, was a good fit with working conditions of that era. The Home Owners Loan Corporation refinanced borrowers who were delinquent and in danger of losing their homes from short maturity mortgages to 20 to 25 year ones, considerably lowering borrower payments. This was considered a radical experiment at the time, and was expected to lose $1 billion, a very large sum in those days. When its operations ceased, it had shown a profit. One of the big reasons was the stability of employment. Job tenures were much longer than now; in fact, being fired was rare, and usually a result of business failure or distress, not management whim or need to meet quarterly earnings targets. And with the exception of some very large corporations that liked transferring managers (IBM stood for “I’ve been moved”), families were more likely to remain in the same house over the husband’s working life.

Much of this equation has been turned on its head. A college degree is now an entry requirement for many jobs. 94% of recent graduates borrowed to finance their education and the average debt level across all student debtors is over $23,000. And the fact that student debt cannot be discharged in bankruptcy means that young people are less likely to buy a house than in the past, and will take longer to accumulate enough savings to do so. On top of that, the uncertainty of employment makes buying a house a much dodgier proposition than in the past. One of the paradigmatic stories of our day is how people in their 40s and 50s who lose a job either can’t find work at all, and join the ranks of the long-term unemployed, or take a large cut in pay. If they haven’t paid off their mortgage, that loss of income often leads to foreclosure. Ever shortening job tenures increases the odds of an abrupt, permanent fall in pay. And as Elizabeth Warren described in The Two Income Trap, two earner families are more vulnerable economically than the old working dad, stay at home model.

Given this sea change in the stability of middle class income, it seems obvious that home ownership will not be attainable for many workers. Moreover, some may recognize that even if they can afford to buy, that the risk/return tradeoff may still make rental more attractive for them.

In some respects, this transition is already underway. Homeownership is now at its lowest level in 15 years. And some societies have much higher levels of renting than the US, most notably Germany.

But there is a second major shift underway, which is a planned transfer of large number of homes into the hands of private equity landlords. Fannie and Freddie are now piloting programs for bulk sales of foreclosed home. Historically, they’ve sold them individually or in geographically dispersed packages, but since February, Fannie has been experimenting with selling homes in large volumes in Phoenix, Atlanta, Chicago, Florida, Los Angeles and Las Vegas. There are also reports of investors making significant buys in Florida. Bank of America is also experimenting with bulk sales. It’s likely that once the Fannie and Freddie programs are up and running, the servicers will copy their template with private label loans.

While the bulk sales programs allows not for profits and government bodies to participate, the main target is private equity investors. And the expectation is that fortunes will be made. As one prospective buyer said, “If the government is selling, I want to be on the other side of that trade.” Major PE firms are raising multi-billion dollar funds dedicated to this opportunity.

There are several grounds for concern. One is that there is no model for large-scale, absentee landlords of single family homes. In the past, institutional investment in residential rental has been in multifamily properties, often apartment buildings. And these almost without exception had property management in place at the time of acquisition or was in dense urban areas where it was easy to find experienced management firms. And even in locales where those services are available, PE firms have too often proven to be bad landlords by design.

Consider New York City, which provide considerable protections for tenants (both in rent regulated and market price units) that cannot be waived in a rental agreement (although sneaky landlords are known to try to persuade tenants otherwise). One would think that would make it plenty uninviting for private equity investors, since they have high return targets. But in fact the PE crowd has made acquisitions, and as of 2008 owned 6% of the rent regulated apartments in the city. Their plan was not simply to wait for normal turnover to allow them to increase rents to market rate but to help nature along. As Gretchen Morgenson wrote:

As regulatory filings and promotional materials show, the companies expect to generate higher returns quickly by increasing rents after existing tenants vacate their units. Their success depends upon far higher vacancy rates than are typical in rent-regulated apartments in New York.

Some residents and tenant advocates say that they began seeing what they consider a pattern of harassment of low-income tenants this year and suspect that it is a result of the new owners’ business models. Tenants have been sued repeatedly for unpaid rent that has already been received by the landlords; they have been sent false notices of rent bills, lease terminations and nonrenewals; and they have been accused of illegal sublets.

The highest profile example was Stuyvesant Town, a $5.4 billion acquisition by Blackrock and Tishman Speyer that filed for bankruptcy in 2010. This anodyne section of a New York Times story gives a sense of the level of landlord misbehavior:

Ultimately, Tishman Speyer, like many similar buyers, was unable to convert rent-regulated apartments to market-rate rents as quickly as it had anticipated. Rents fell as the recession deepened, and then last fall the state’s highest court ruled that the owners had improperly deregulated and raised rents on about 4,400 of the apartments while getting special tax breaks from the city.

The 15-story red-brick buildings are in good shape, tenants say, but they noted that the maintenance and security staffs had been cut. And the owners may owe $200 million in rent overcharges to thousands of tenants as a result of the court ruling.

Similarly, in 2010, the Village Voice listed two private equity firms, Vantage and Cronos Capital, among the ten worst landlords.

One name often bandied about as a prospective bulk sales buyer is Fortress. Tenants beware. The model for Fortress appears to be the Gagfah. Some cash-strapped German cities were privatizing housing, and Fortress-controlled Gagfah bought 45,000 rental units from Dresden. Gagfah agreed to give existing tenants the right of first refusal on any sale. It was also criticized in local media for neglecting repairs. Gagfah was sued for €1 billion by Dresden and settled for €40 million

What can we expect from our new suburban absentee landlords? First is they don’t seem to appreciate how operationally intensive property management is. Second is that they plan to make tenants responsible for maintaining properties. Yes, you read this correctly; we’ve heard this from various sources. Having both owned and rented, one of the nice things about renting is that when Shit Happens, like a leak, reasonably well run buildings are on top of it pronto. By contrast, what does “renting” mean if you as tenant are responsible for some, potentially a lot, of what would seem to be the owner’s responsibility?

A comment from a PE investor in a recent post breezily presents their assumptions:

In many markets, the maintenance obligations fall to the tenant. Grab a sample set of local real estate board form leases and you’ll find this to be the case. Moreover, while these same form leases do place the burden of capital repairs on the landlord’s side (as is the case with multi-family properties), this is an identifiable risk that can be assessed just as it would be by a skilled operator acquiring larger-scale multi-family properties. Falling trees are non-discriminatory – they will crush the roof of a single-family home and a two or three story garden-style apartment building with equal vigor. The previous run of the “for sale” cycle has created legions of well-qualified providers of ownership related services, from inspectors to repair specialists, many of whom are thrilled to raise the tenor of their operations by contracting locally and regionally on a bulk basis with professional owners. At the risk of introducing cliche, don’t overlook how frictionless the management oversight of this type of service effort has become in this age of pervasive connectivity.

First, the “well qualified providers of ownership services” are the companies services now hire to manage real estate they’ve foreclosed on. I’m sure readers will elaborate in comments, but there is considerable evidence that their competence level is low: homes that have not been secured properly and were stripped for copper and appliances (even in upscale neighborhoods), death because children fell in pools that weren’t drained; squatting; and more mundane problems like overgrown lawns. And what is this “pervasive connectivity” about? So you can text rather than call an emergency service?

So what is the line between “capital repairs” and “maintenance”? The subtext is that the PE crowd intends to take as narrow a view of what constitutes required repairs as possible; the reports of PE landlords from hell and underinvestment in Stuy Town would tend to confirm that. Reader Doug Terpstra also begged to differ with the remark quoted above (boldface his):

….your current “frictionless management” can become gooey very quickly when the blood-flow from stones turns into a trickle and the current rent bubble land-rush pops and inevitably follows RE values on a time-delayed graph.

Also, your perception of being able to put all maintenance responsibility on plantation tenants only goes so far. Beyond neglect, a whole lot can go wrong in a hurry from a disgruntled or distressed tenant. And even in regressive red states like Arizona, there’s a lot of legal wiggle room for a put-upon tenant who might decide to get uppity:

“The landlord and tenant of a single family residence may agree in writing, supported by adequate
consideration
, that the tenant perform the landlord’s duties specified in subsection A, paragraphs 5 and 6 of this section, and also specified repairs, maintenance tasks, alterations and remodeling, but only if the transaction is entered into in good faith, not for the purpose of evading the obligations of the landlord and the work is not necessary to cure noncompliance with subsection A, paragraphs 1 and 2 of this section.” (Subsection A, BTW, is quite comprehensive and affords tenants considerable leverage, including damages for untimely compliance)

Now readers might wonder: wouldn’t it be in the best interest of these landlords to do at least an adequate job of taking care of the properties? After all, don’t they intend to sell the houses, preferably as soon as they seem some price appreciation? Don’t be so sure. First, one possible acquirer is the current tenant; you might see financed sales or rent to own structures. And prospective owners would presumably buck the efforts to dump maintenance on them less than those who weren’t potential buyers. Second, the mortgage industry has long been keen to securitize rentals, and these bulk sales programs would give them enough properties to move this scheme forward. Imagine the fees! And imagine how well this will work from the perspective of tenants. As with mortgages, you’d presumably have a servicer who’d handle taking and accounting for the rental payments and lease renewals as well as handling whatever in the way of repairs and maintenance they deigned to provide. Given how accountable and responsive servicers have been, I shudder to think how these securitization servicers would perform.

So as we indicated, there is good reason to expect that the new PE landlords will undermaintain the properties they buy. That in turn has implications for the neighboring properties. At a minimum, you can expect to see more turnover in those homes (tenants less inclined to renew leases) and/or bad landlords getting a name (in this world of pervasive connectivity, it will be much easier to find that sort of thing out). Thus it is in the interest of homeowners to push for tougher rental standards to help protect property values and encourage long-term stable tenancy (something you see in places like New York where tenants have solid legal protections).

This program is troubling not just on its own, but also as another manifestation of the falling status of the American middle class. As Matt Stoller wrote:

Debt is not just a credit instrument, it is an instrument of political and economic control.

It’s actually baked into our culture. The phrase ‘the man’, as in ‘fight the man’, referred originally to creditors. ‘The man’ in the 19th century stood for ‘furnishing man’, the merchant that sold 19th century sharecroppers and Southern farmers their supplies for the year, usually on credit. Farmers, often illiterate and certainly unable to understand the arrangements into which they were entering, were charged interest rates of 80-100 percent a year, with a lien places on their crops. When approaching a furnishing agent, who could grant them credit for seeds, equipment, even food itself, a farmer would meekly look down nervously as his debts were marked down in a notebook. At the end of a year, due to deflation and usury, farmers usually owed more than they started the year owing. Their land was often forfeit, and eventually most of them became tenant farmers…

[W]e are in the midst of creating a second sharecropper society..Today, the debts do not involve liens against crops. People in modern America carry student loans, credit card debt, and mortgages…Young people and what only cynics might call ‘homeowners’ have no choice but to jump on the treadmill of debt, as debtcroppers. The goal is not to have them pay off their debts, but to owe forever. Whatever a debtcropper owes, a wealthy creditor owns. And as a bonus, the heavier the debt burden of American citizenry, the less able we are able to organize and claim our democratic rights as citizens. Debtcroppers don’t start companies and innovate, they don’t take chances, and they don’t claim their political rights.

The one plus ordinary Americans have in the coming rental conversion is that this is a battle that can be fought on a local level, where major financial players seldom bother buying political favors and can easily misjudge who the key players are. Stronger rental rights, which would discourage absentee rentiers from bidding up properties, would also work to the advantage of local landlords who have been the traditional owners of residential rental properties. This is a battle that can be won, provided homeowners get word soon enough that a quiet battle for their communities is about to be joined.

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97 comments

    1. Susan the other

      We are looking at the failure of “successful” capitalism where so many resources have been translated into dollars it creates a wealth bubble. There are fewer and fewer places to “invest” these bubble dollars because capitalism has been so efficient, and skimming profit has reached peak productivity. But for capitalism to perpetuate itself, all that money has to go somewhere or it will lose value just sitting in the meaningless bank. So commoditize and securitize and derivativize the old system so that the growth of “wealth” will not just continue but will continue to be valuable. For a few. Maybe like carbon, wealth needs to be sequestered.

      1. Paul Jurczak

        Capitalism is running out of steam. The 20th century has seen dramatic increases in productivity, first in agriculture then in industry. We require ever decreasing fraction of population to be employed actually making things, while parasitic FIRE (finance, insurance and real estate) part of economy is extracting growing amount of wealth from productive part of economy (over 30% of GDP in U.S. recently). No wonder the chase is on for any source of revenue – real or synthetic. The monster had already eaten much more than its tail.

        1. scraping_by

          Well, we need an ever decreasing fraction of people’s time employed to make things. The idea this could be accomplished by spending less time at work while receiving the same reward is sensible, practical, and horrible to the leisure class. What’s the point of being an elite if everyone has the same amount of free time?

        2. Brindle

          The malevolency of todays FIRE lords has shared DNA with the Southern Plantation owner—–Sara Robinson:

          “In the old South, on the other hand, the degree of liberty you enjoyed was a direct function of your God-given place in the social hierarchy. The higher your status, the more authority you had, and the more “liberty” you could exercise — which meant, in practical terms, that you had the right to take more “liberties” with the lives, rights and property of other people. Like an English lord unfettered from the Magna Carta, nobody had the authority to tell a Southern gentleman what to do with resources under his control. In this model, that’s what liberty is. If you don’t have the freedom to rape, beat, torture, kill, enslave, or exploit your underlings (including your wife and children) with impunity — or abuse the land, or enforce rules on others that you will never have to answer to yourself — then you can’t
          really call yourself a free man.”

          http://www.alternet.org/story/156071/conservative_southern_values_revived%3A_how_a_brutal_strain_of_american_aristocrats_have_come_to_rule_america

          1. LeonovaBalletRusse

            Brindle: Eternal .01% DNA within Rentier/Extraction “Capitalist” frame:

            “THE MIND OF THE MASTER CLASS: History and Faith in the Southern Slaveholders’ Worldview”
            and
            “FRUITS OF MERCHANT CAPITAL: Slavery and Bourgeois Property in the Rise and Expansion of Capitalism”
            by Elizabeth Fox-Genovese and Eugene D. Genovese;

            “THE IRON HEEL” by Jack London;

            “THE SHOCK DOCTRINE: The Rise of Disaster Capitalism” by Naomi Klein.

            “The .01%DNA and their .99% Agents du Jour are always with us.”
            (famous quotation tweaked)

      2. polistra

        The sequestration of carbon (along with other “Green” initiatives like solar and wind and ethanol) is just another bubble, just another way for the giant corporations to buy a subsidy from government and turn it into derivatives. (That’s what “Carbon Credits” are.)

        Please, please, please, don’t be fooled by this bubble while you’re being objective and perceptive about the other bubbles!

      3. Peter

        Hello Susan,
        I think you are right. There is too much capital and people who own it need to put it to work to earn more. But they have run out of realistic investments. This leaves speculation, inflating the “value” of, say stocks, to way, way more than is realistic considering its earning power. Maybe we should just destroy a bunch of capital – it’s really just an imaginary number in an account somewhere and doesn’t represent anything real.

  1. Sara K.

    “Stronger rental rights, which would discourage absentee rentiers from bidding up properties, would also work to the advantage of local landlords who have been the traditional owners of residential rental properties.”

    Really? It depends a lot on what these ‘stronger rental rights’ are.

    Okay, if there are local landlords who understand the area AND are trying to increase their properties, discouraging absentee landlords who bid up the properties is to their advantage. But not all local landlords want to increase their properties. And, to the extent that absentee landlords cause destruction in the neighborhood, they also harm the local landlords. And if ‘stronger rental rights’ are already in line with what the decent local landlords do, it won’t affect them very much.

    In San Francisco, small landlords used to be exempt from rent control. Then they changed the rules so that all landlords with property built before 1978, regardless of size, had to follow rent control. The big issue was not the price controls itself, but the complicated legal codes associated with it. More complicated legal codes = more legal costs. This actually worked to the benefit of the largest landlords in San Francisco because a) they were already under rent control and b) the change made small landlords less competitive and cannot afford to retain a lawyer (retaining one’s own lawyer is more cost-effective than hiring a lawyer on a case-by-case basis).

    Unfortunately, I don’t have hard data, but based on the anecdotes I’ve heard, this has led to a consolidation of more rental properties in fewer hands in San Francisco (people will hard data are welcome to refute this).

    Of course, those large landlords were not speculators, unlike what you are talking about here. They understood how to use the change in rent control to their advantage. The speculators don’t even think about legalities (at least not carefully). But if they aren’t thinking about the legalities, will stronger rental rights discourage them?

    Stronger rental rights will make it easier for tenants to defend themselves, and that’s important. It’s also important for tenants to understand their rights, which might be a harder nut to crack. I am merely questioning your assertion that this is necessarily good for the local landlords.

    1. Yves Smith Post author

      It makes long term tenancy more attractive, which leads to “better” people, meaning more economically stable, being tenants. That means less turnover, less vacancy, and less need to spruce up the apartments (which a landlord has to do to have the apartment look fresh or at least not awful to a prospective tenant). It ALSO increases tenant willingness to take care of their rental better.

      My building has a lot of rent stabilized units. They were rent controlled in WWII and then (when the tenant turns over), then the rent goes to rent stabilized even if the rent is over the supposed decontrol level of $2000 a month.

      The two big advantages of renting in NYC are:

      1. The landlord cannot “unreasonably withhold” the right to sublet for 2 years out of any 4 year period

      2. If you are current on your payments on a rent stabilized apartment, the landlord must offer you a lease renewal.

      The latter means they can’t kick you out. I know lots of tenants who have fixed up their apartments. One woman on the 14th floor spent over $1 million.

      The landlord also seems perfectly happy with this arrangement. They are kind of cheap about fixing the public spaces but they don’t harass tenants to try to destabilize the apartments (for instance, sending the forms asking what your income is, since if your income exceeds a certain level 2 years in succession, they can destabilize the apt). Similarly, when I sublet to go to Oz, the building approved the sublet pronto twice (I had 2 different tenants, 1 year each). They even agreed to let me sublet a third year which was generous on their part. By contrast, coops hate sublets, they let you sublet only one year if that, and they typically have an onerous approval process. And some NYC condos also restrict sublets.

      There are other tenant protections: minimum heat levels, I think they are required to fix interruptions in water pronto (this is a really serious violation). Look, I once bought a coop and discovered when winter came that my apt (on building heat on the 2nd floor) was ice cold! And the building was completely uncooperative. In a rental, I would have had MUCH better recourse.

      1. LucyLulu

        Here in NC having AC is almost as important as having heat. I sent you an article a couple days ago, Yves, about a high rise apt building where I live where the renters don’t have the same kind of rights, nor do the landlords maintain public areas. They’ve spent much of the summer with no AC, the pool has been shut down for months, no lights in stairwells, lock broken on security doors, etc. The last two years taxes are unpaid in a county that doesn’t play around if you don’t pay taxes. I couldn’t get water/sewer here unless I paid the last owner’s 6 mos. of unpaid bills… was told I could pursue the last owner if I wanted (they left an invalid forwarding address)…… they have you over a barrel, gotta have water.

        It made the news when Duke Energy cut the power due to unpaid bills and inability to reach the owners, and the building was condemned in the middle of the night and everyone evacuated. Why it couldn’t wait ’til morning??? Anyhoos, they managed to track down the entity that bought the building two years ago to rent privately as student housing (close to three colleges). It’s a “venture equity” firm, whose website has since gone offline. From what was available as cached pages it appears that they specialize in ‘buying, renting, and selling’ this type of “affordable housing” in the SE, in cahoots with a professional maintenance firm.

        /Presumably all their “projects” got the same deluxe maintenance treatment. /sarc off Google came back with lots of hits on their project in Athens, Ga. So, do the investors fund a project that buys a building, and then profits (and benefits from all kinds of special tax treatment) when it collects rents while making no outlays on maintenance, then selling when the building is no longer habitable? Is this a common type scheme in the equity world?

        1. Lambert Strether

          Lucy, you know who owns the company that owns Grandview (that building)? You guessed it, private equity.

          A lending group that partially funds the owner of the Cascades Grandview Apartments on West Market Street in Greensboro is suing the building’s owner and has officially taken control of the building.

          The city of Greensboro said the lawsuit put the building in receivership, meaning the lenders have cut out the owner in an attempt to recoup as much money as they can, believing the owner will be unable to pay back the loans his or herself.

          Grayson Russell represents Spartan Heights Apartments, LLC, which is owned by a private equity firm in New York. Russell said he is currently on a fact-finding mission for his clients, but the plan is to eventually fix the things that have gone wrong with the building.

          The private equity firm is carefully not named.

      2. vlade

        Yves, I agree, but at least here in UK there’s often an agency problem.

        The longest lease I ever got was two years – and I don’t think you can even get that now. I rented a property for five years, but had to renew the lease every year, which was always a nerve racking, because you’d not be told if it was renewed until about three-two weeks before you were due to move out if it wasn’t. When I asked to have a long lease, I was told “we don’t do them”.

        The problem was not the landlord though, it was the agent, who raked fees for nothing (“renewal”) every year, and kept persuading landlord that having short term lease is better for them since they can always rent for more if rents go up blah blah blah.

        Long term rents are in interest of both good tenant and landlord, but ARE NOT in the interest of the agents in between them who get paid both by skimming the rents (as much as 10% of the rent) + turnover fees. The rent’s there always (more or less, but given the tight renting market in London vacancies are low and agents got used to it as their god-given right), so generating turnover is the easy way how to increase revenues…

        Having the right of automatic renewal (w/o any fees payable) if current and non-problematic would be great way of forcing the agents out of this, but somehow I doubt it’s high on the list of priorities here.

  2. Lambert Strether

    We might also ask ourselves what sort of Constitutional order would support such a society, and whether it’s the one we learned about in Civics 101.

    We might consider, for example, all the uses to which surveillance and a militarized police force might be put.

    1. Susan the other

      I see a great play in the making: the Gestapo forcing people to go shopping; when they fight back they are put in jail and forced to make cheap products for the purveyor oligarchs. This system also collapses.

    1. citalopram

      Capitalism with controls is just fine. A strong union base is great.

      What we have now is Randian Corporate Kleptocracy.

      1. LeonovaBalletRusse

        c, We’re getting just what the Fourth Reich ordered: the 19th century before “enlightenment” – the London of Dickens – the Feudal “Dark Ages” -take your pick. As we see, “They did it.” And We the People had Eyes “Wide Shut.”

        1. different clue

          I suspect that is truer than I wish it were. Actually, some people with eyes wide open are surrounded by milling masses of sheeple with eyes wide shut. Eyes-wide-open people will have to find eachother as best they can and work out their own individual and family and maybe even eyes-wide-open community-of-awareness survivalism in the midst of people who are probably too mobilization-proof to learn the kind of co-solidarity needed to tear down the system en masse.

          Maybe at least the eyes-wide-open people can describe what they see to everyone around them in hopes that some other eyes may be openable and recruitable. Certainly some of the counter-banker counter-MERS lawsuits described hear are signs of open eyes and readiness to do combat on the part of some.

          Those people could also study and try learning to apply in their own lives and communities the methods of Economic Resistance and Rejection and Rebellion worked out and described by people like Catherine Austin Fitts, Woody Tasch, Dmitri Orlov, John Robb, and hundreds of others.

  3. LillithMc

    The banks are pushing out home-owners who often showed “pride of ownership” in favor of selling low to investors and creating slums. Perhaps the banks get mortgage insurance for their “loss”. Especially in the suburbs communities are becoming slums and crime is on the rise. Local governments are in crises. Public services including police and fire-fighters are cut. “Bleeders” like absentee owners are beginning to be fined for their neglect of properties. Jobs are uncertain. Loans do not match the job markets. None of the current housing patterns are sustainable. Time to create a new way to live that cuts out the fat cats.

  4. citalopram

    “Job tenures were much longer than now; in fact, being fired was rare, and usually a result of business failure or distress, not management whim or need to meet quarterly earnings targets. ”

    Well, this is what happens when the average American, who is not in the upper 1 percent, turn their backs on their own best interests by supporting the rich over their own class interests.

    It’s been a masterful propaganda effort by the best and brightest.

    We Americans have made our bed, now we can lay in it.

    1. CB

      Most of the middle class came from the lower class, and couldn’t cut their ties to their roots fast enough when they moved into the newly developed burbs. Turned their eyes to their betters, they did, and imagined themselves palsies with the upper classes. Just a run of good luck–which is always characterized as “hard work”–away from private schools and tony neighborhoods. I guess it comes of identifying up. I always thought the polularity of the Dynasty/Dallas/Falcon Crest fantasies were another form of identifying up.

    2. different clue

      Have we? Did all those people who voted for Bill Clinton really understand they were voting for Republican-style Free Trade Treason?

  5. josh

    PE will be looking for a bailout. Even in the best markets SFH rentals is a high-touch operation. PE eyeing local landlord returns should keep in mind how much time those landlords are putting into managing and maintaining their properties.

    1. djrichard

      The only play in this is if they can corner the market. If they can capture enough “supply” then they can control rent pricing. And then they can extract more money from people’s wallets. Kind of like the oil business.

      1. Mark P.

        drichard: ‘The only play in this is if … they can capture enough “supply” then they can control rent pricing. And then they can extract more money from people’s wallets’

        Sure. Obviously, that was and is the central part of the plan, while the banks/servicers are keeping large amounts of foreclosures off the market to create an artifically constrained market. And, of course, it’s already working in many areas –

        ‘Sky-High, as in the Rent Check’
        http://www.nytimes.com/2012/07/29/realestate/big-deal-sky-high-as-in-the-rent-check.html?pagewanted=all

        ‘Boston rental prices up 7% from last year’
        http://www.necn.com/08/15/12/Boston-rental-prices-up-7-from-last-year/landing_business.html?blockID=757161&feedID=4209

        ‘Brooklyn rent prices soaring, experts say’
        http://abclocal.go.com/wabc/story?section=news/local/new_york&id=8748979

        ‘Baltimore-area rental rates rise 11.9 percent in last year’
        http://www.bizjournals.com/baltimore/blog/real-estate/2012/08/baltimore-area-rental-rates-rise-119.html

        I could go on with the linkage to belabor the obvious. Let’s remind ourselves:

        [1] That the PE and hedge funds getting into this area are demanding and being granted by the Obama administration firesale prices of cents on the dollar on the properties they purchase — indeed, in instances in the SF Bay Area I’ve noticed PE being favored with valuations that are at or below 1980 levels.

        [2] That while the argument is made that this is the most tenable strategy available to the Obama administration under emergency conditions for purposes of restoring normalcy to the US residential market — a false argument, since other strategies do exist — the Obama administration has done what it invariably does and gone straight for the Potemkin option that is most favorable to big capital, and most extractive and costly to the vast mass of Americans.

        To repeat: in every single instance — from the Fed’s ZIRP rates for the banks; through Obamacare’s effective perpetuation of the health insurance and big pharma sector’s looting (twice the healthcare costs of any other developed nation for outcomes currently ranking as the 37th worst in the world); through tacit support during 2009-10 of the big banks’ proprietary HFT desks’ manipulations because they created a Potemkin stock market — the Obama administration has without exception chosen chosen those phony solutions that are most favorable to the financial industry and most extractive and damaging to the vast mass of Americans, whom the administration apparently views as primarily being krill to feed that financial industry.

    2. LeonovaBalletRusse

      josh, Plantation Model: Overseer does the dirty work, rules over the slaves. The Plantation Owner is not about to “eliminate the middleman” between owner and slave/serf/resentful subject.

  6. Mel

    I can see how these investors could breezily present their assumptions. Nevertheless, “War on Payroll” is still my watchword. The cunning plan is to get property maintenance costs paid for by people who have no money. They didn’t have the money to buy; they won’t have the money to cover expenses and turn over an attractive ROI on the purchase cost. When the investors come to terms with this they’ll need another big government bailout.

    1. LeonovaBalletRusse

      Mel, the ruthless, quick, “tried and true” solution for the new owner is to convert the apartment building into a block of “condominiums” — the tenants who can afford to buy the apartment as a condo may do so (although owner price may be designed to shut out tenants); the tenants who cannot afford the “condoized” apartment is out on his/her ear.

      This is going to be a DISASTER for artists/performing artists in NYC, a Disaster Designed to bring high rents to the new owner, leaving the artists as “collateral damage.” Hey, it’s “Total War” for extracting profit, isn’t it?

      1. LucyLulu

        Who will buy these condos? Banks are requiring at least 20% down (more for condos if they’re smart) and lower debt to income ratios. Many who would otherwise qualify have a foreclosure/short sale/deed in lieu on their credit report for 7 years, ruling out their eligibility for loans. If anybody is interested in a condo, they are selling for pocket change in Florida. Some condo communities have become ghost towns.

  7. Eureka Springs

    Triple the minimum wage. Outlaw the sales/ownership of more than three foreclosed fannie/freddie homes to any business entity or individual investor… Better yet simply insist they be sold only as single family entities…. at auction/fair market – 15 yr mortgage or less prices. If not sold, open the property up in the form of a lottery for squatters/homesteading.

    Most of these homes are suburban sprawl homes which are less than worthless mid to long term anyway… poorly built, too damn large, inefficient on so many levels… including the petroleum consumption needed to live that way.

    I take great comfort when looking around at all our ugly big boxes, strip malls, suburban homes built since the dot boom…. knowing they will be long gone in 50 years. Such shoddy work, with zero taste should disappear quickly. What a dawg awful ugly country were are.

    Young folk will likely have to build much smaller, much more efficient homes… at costs which make a 15 yr mortgage a very long commitment. * to 10 years should really be the new max.

    1. Born in the Benighted States

      If we had elected a Roosevelt instead of a Hoover in 2008, we might be doing just what you advise.

      Now we are going to see how the Great Depression would have turned out if the New Deal hadn’t come along.

      Foreclosures, no unemployment insurance, food shortages, no jobs unless you count killing people or poisoning them: this is the legacy we Americans are leaving the next generation.

      Not to mention a roving class of knaves and fools who believe they are unstoppable.

      1. Doug Terpstra

        It’s a bit unfair to insult Herbert Hoover with comparisons to Obama . . . actually, more than a bit. Hoover may have been too passive, but he didn’t do gymnastics to make things worse, and did in fact initiate some late programs that Roosevelt got credit for. Obama’s policies, including these secret GSE deals, have Shock Doctrine engineering written all over them. Everything he does is bass-ackwards.

        I hope that’s not a drone I hear overhead . . .

        1. F. Beard

          Hoover was at least an engineer and engineers are problem solvers and mathematically literate. He might have fixed things given a 2nd term but of course did not deserve one for not being decisive enough in his 1st.

          1. SqueakyRat

            Engineers, for some reason i don’t get, also seem to be among the most economically gormless of all professionals.

          2. F. Beard

            I think most engineers assume (erroneously) that the money system is ethical and don’t give it much thought.

        2. CB

          I am always disconcerted when I see references to Obama as Hoover–or just the usual aspersions thrown at Hoover. Read Hoover’s bio. I have enormous respect for him as a self-made and decent, brilliant man. Just wrong for the time and place. Obama has nothing in common, really.

          It was Marriner Eccles who powered the intellectual framework and operating programs of the Roosevelt administration. There were others, of course, including Frances Perkins, but I believe Eccles was at the center of the administration’s successes. A no nonsense, bottom line guy.

          If you want a shock, read George Romney’s political bio. He and his son have not nearly enough in common. George was a remarkable poliltical figure. He would be a pariah, anathema, in today’s Republican Party.

  8. Will

    That’s why the elites love the million+ a year immigration. Demand for housing. Prices stay up. Bring them in.

    1. CaitlinO

      That’s one of the schizophrenic aspects of the GOParty of the elites. One faction is deeply anti-immigrant and is at odds with the faction that is fanatically pro-business and desirous of bargain basement priced labor.

      Between anti-immigrant legislation (e.g. Arizona) and the Great Recession we are currently at net zero in immigration from Latin America. Last year, farmers in Georgia were screaming that they couldn’t find labor at any price to bring in the crops, today it’s California saying that fruits and vegetables will rot in the fields.

      With all that’s going on, immigration isn’t likely to raise demand for housing any time soon, I would guess.

      http://losangeles.cbslocal.com/2012/08/21/california-growers-complain-of-labor-shortage/

  9. Bernard

    this means more concentration of property in the hand of fewer owners. consolidation of ownership of property. those with money can buy others out and buy connections to City Hall. diminishing choices for tenants, and fewer owners.

    this is going to be a huge demographic change in our society. more and more of the land/houses/cities owned by fewer and fewer people, outright appearance of lords and fiefdoms. the poor/middle class will have even fewer choices.
    darwinism in another form. the lord of the flies once again.

    those that have vs. those that will never be able to “get.”
    the end of the American Dream, becoming wealthy.

    wonder how they will “sell” the American dream to the remaining idiot Americans.

    1. djrichard

      wonder how they will “sell” the American dream to the remaining idiot Americans

      See Will’s comment just above re: why the elites love the million+ a year immigration

      If current batch is disillusioned with the American dream, bring in another batch that isn’t disillusioned (yet). And sit back and watch them break their backs for that dream.

    2. Sufferin' Succotash

      They won’t have to “sell” it. There are plenty of scapegoats on hand: Mexicans, Muslims, rape victims who have abortions, GAYS!!!

  10. Westcoastliberal

    How ’bout we make these foreclosed and forgotten homes available to the homeless for $1? Cheaper than the city bulldozing them and a potential solution for the homeless debacle.
    The idea of renters being responsible for repairs to the home they’re “renting” is laughable. Oh yeah, THAT’LL work! WTF?

    1. scraping_by

      Urban homesteading. Works too well. People get into houses and are satisfied.

      Part of scarcity is the mystique, the popular mental image of a thing as expensive and difficult to obtain. Just work at it and it’s yours – isn’t that anticapitalism?

      BTW, this posting might cause silly assed legal trouble. If so, dear hostess, let me repost with necessary synonyms. See “Trademark controversy”

      http://en.wikipedia.org/wiki/Urban_homesteading

  11. F. Beard

    People in modern America carry student loans, credit card debt, and mortgages…Young people and what only cynics might call ‘homeowners’ have no choice but to jump on the treadmill of debt, as debtcroppers. The goal is not to have them pay off their debts, but to owe forever. Whatever a debtcropper owes, a wealthy creditor owns. And as a bonus, the heavier the debt burden of American citizenry, the less able we are able to organize and claim our democratic rights as citizens. Debtcroppers don’t start companies and innovate, they don’t take chances, and they don’t claim their political rights. Matt Stoller

    Whocouldanode that a money system based on theft for stolen purchasing power should cause such wealth destruction? Who are the banks that they create 97% of the money supply while simultaneously cheating debtors and non-debtors alike?

    The solution is a ban on further credit creation, which is a form of counterfeiting, and an equal and metered (to prevent price inflation) bailout of the entire adult population including non-debtors.

    It’s a disgrace we allow such a system to continue when a relatively painless solution exists.

    1. enouf

      I’ve been meaning to ask you, et al, this;

      Why does anyone need any credit?
      (not to say it doesn’t have its uses, in extreme circumstances).

      The ideology of “credit (worthiness)” implies a “less than, subservient, unworthy” positional quagmire for the braindead, just as the ideology of “working for wages” does. (Yes, Unions, when properly run, provide a backstop to this incessant, maniacal, vacuous ideaology that *some* people need to “work” for *other* people)

      *If* you can concur that the USD of 1913 is worth/valued at 1/20th (20:1 ratio, or $0.05, or 5 cents) in today’s dollars,… *then* you would most certainly agree the sheeple’s blood-brain-barrier blockage is even moreso at fault than is any form of Fractional Reserve Counterfeiting Cartel, No? (Multiply your income x19 (*19) to figure out what kind of lifestyle you’d have).

      Can you (or anyone) explain clearly and concisely, without rhetoric, *why* our (USD) dollars depreciated in value?

      Love

  12. PeonInChief

    Small landlords? Stronger tenants’ rights? Not in this world. In fact, small landlords are often the worst–they’re petty, excessively involved in the personal lives of their tenants, and take it very personally when you ask for repairs.

  13. charles sereno

    Here at NC, under the watchful eye of Mother Yves, this merry band of pilgrims (as varied as Chaucer’s) bids welcome to well-spoken, mannered trolls. Where have they gone? We’ll just have to make do.

  14. Wells Fargo Must Die

    Don’t think this is going to be much of a problem. I wish these vulture investors the best of luck. Remaking the rental market will be quite the challenge. Renting houses is particularly burdensome.

    Anyone that knows anything about renters knows that good ones are hard to find and something to be valued.

    If it were possible to pass maintenance costs to the renters, it would have already been done.

    1. Mark P.

      ‘Remaking the rental market will be quite the challenge.’

      Do you really think they haven’t run the numbers?

      With the artificial constraints on the foreclosed properties going to market thanks to the banks/servicers, with massive indebtedness and ineligibility for mortgages on the part of much of the US population, and with strategic block purchasing at firesale prices in targeted areas, it might even be possible to blow the biggest, most extractive rental RE bubble in history.

      1. Brindle

        Big Bubbles look to be the mechanism/device to pry what little ownership/assests the middle class still has.

  15. Doug Terpstra

    Vulture capitalist slumlords, and a bumper crop of parched tumbleweeds in tumbledown Phoenix neighborhoods — what a way to run a plantation.

    Yes, just “imagine the fees”, and the weekly rent-to-own contracts with kneecapping rent-collectors. Hey, your septic tank needs cleaning. Wow! 400% payday- and car-title loans are so passé. Oh, do pardon my drool.

    The (not so) secret collusion between GSE’s and PE firms in your Fannie link is especially worrisome, given that it’s a pilot program. Every time you think Obama can’t possibly devise a worse program for “helping” homedebtors, he does. The man is a brilliant change agent.

  16. CB

    Municipal tax collectors are selling tax liens to PEs which intend to rent the properties. Now, on what scale of dumb would you rank selling your municipality’s birthrights to slumlords? These tax liens are averaging out to some four figures per. Great price for a house, don’t you think, especially when you can so easily shuck maintenance costs AND RE taxes, what with you being a corporation and difficult, at best, for a municipality to deal with. I can’t wait to see these tax collectors try to get PEs to pass thru RE taxes. Tax liens today exchanged for a revenue nightmare for years, decades. How many municipalites even have a budget for this kind of litigation? Which is what it will, eventually, come to. God, and these morons are bragging about getting their tax liens booked.

          1. CB

            Municipal tax collectors put liens, or whatever is legally mandated, on properties for unpaid tax(es). If the liens remain unpaid, at some point the properties can be sold “for taxes.” In NJ, municipalies have to obtain a court order to take ownership of the property for a tax sale. Private companies and individuals are doing deals for lots(blocks) of tax liens, paying the taxes and taking possession of the properties. By the hundreds in larger municipalities. These kinds of property sales have been around for a long, long time and there have always been RE investors on the lookout for tax sales. But it’s the number of residential properties being sold and the investors that are different now.

            Municipal tax collectors that sell large lots of tax liens to rental property investors are selling the communities’ birthrights to what will likely be slumlords. And collecting future RE taxes, not to mention enforcing occupancy codes, will be more than municipal litigation budgets can withstand. Ask Philadelphia about Samuel A. Rappaport: http://www.bizjournals.com/philadelphia/stories/2002/08/05/focus13.html?page=all And he was just one. We’re creating an exponentially greater problem that will reverberate thru decades.

            These myopically sighted tax lien sales are going to be a plague.

        1. Will

          I don’t understand what Private Equity firms (or Chinese landlords for that matter) want with houses unless they are going to resell them immediately.

          It can’t be a great investment. Too much work. What am I missing?

          1. Patriot

            If they corner the market in real estate, they can charge whatever they want to the renters. The goal will be total extraction.

          2. Yves Smith Post author

            See the rest of this comment

            http://www.nakedcapitalism.com/2012/03/bank-of-america-launches-test-mortgage-to-lease-program-–%C2%A0should-we-be-impressed.html#comment-670182

            Rental markets are currently tight, precisely because so many foreclosed on former homeowners need to rent AND supply is scarce because those homes haven’t been converted to rentals. I don’t think these guys have allowed for what happens when all these bulk sold homes are on the rental market, but if the Administration sells the homes at low enough prices, they’ll still do well.

          3. CB

            Maybe you’re under the impression that the companies and individuals obtaining these properties are in it for the long haul. They are not. Even long standing companies form and unform susidiaries to do certain kinds of business. You might think of it as an ATM process: the various opportunities for short and intermediate profits are the ATMs and the companies that tap those ATMs are formed for the specific purposes. When the ATMs run out of money, the companies formed to tap them are unformed. Bankruptcy is one out. Relieves the bankrupt principals of any inconvenient responsibilities. Clean break, as it were.

            I believe Sam Zell is expert in these kinds of ATM operations, altho the Tribune Company unwinding is said to have cost him some millions. Maybe.

  17. scraping_by

    As an aside, many of the newer houses out in slurbia will fall into squalor with a mind-boggling speed. The materials, workmanship, and designs since, say, 1980, have been on a pretty steady race to the bottom.

    Frame houses have always been built predicated on constant maintenance, painting, roofing, tightening bits falling off, etc., but the lifetime was assumed to be around 150 years. The cardboard palaces out on the curved streets are now lucky to make it to 30 without major overhaul.

    Two things – a modern tract house will dissolve when water gets into the wrong parts, the laminated materials fategue faster than natural materials, and they go up in flames and burn to the ground in minutes.

    That last one brings up a very bad idea. But that sort of insurance scam is a local thing. Couldn’t be scaled up to nationwide.

    1. F. Beard

      There’s no technological reason that modern homes cannot be long lasting, especially factory built modular units. The finance system is a disgrace yet it cannot be denied that it results in some progress.

      1. SubjectivObject

        scraping_by’s comment remains unchallenged. The commercial reality of applied materials properties does not measure up to your subjective ideal. Let alone any predecessor standard.

      2. CB

        I looked at the factory built modulars and finally decided that for me, it wasn’t the way to go. Stick built, here. For certain kinds of installations, facory pre-fabs, as they should be called, are advantageous, I’ll grant. I remind you, the Romans pre-fabbed. Shipped on ox carts, assembled on site. Probably could have heard laborers grousing about the instructions, too. Too many As, Bs, and Cs, not enough fasteners. Ain’t it always the way!

  18. OMF

    Landlords in all contexts are of dubious economic worth. At best, they simply provide an overpriced service. At worst, they become economic parasites, adding no value to anything and reaping profits created entirely by other industries, with little justification.

    Landlords can wreck economies unless they are forced, by law, to maintain and improve their assets to match the rents they are receiving, or else pay towards the municipal infrastructure. Allowing landlords–or any industry–to earn profits without adding value or improving services is the road to economic Bedlam.

  19. BennyProfane

    This is a non issue, and not worth the paranoia. The author points to Sty Town, which should settle things immediately – what a failure that deal was, and proof that landlording is something the money leeches shouldn’t attempt. If anything, it just isn’t that profitable, in the end. Sure, there’s a lot of activity in the market right now, because there is so damn much money out there chasing yield, and some of these people actually think they can return about 7-10% over the next decade, with capitol appreciation at the end of that period sealing the deal. Doubtful, very doubtful, but, you know, an MBA in a cube in a hedge fund can be as much of a sucker as you and me and your sister sometimes.

    Buffet has said many times this year that he would love to buy a zillion houses, but knows it’s a non starter because of the maintenance cost. Just doesn’t make sense on a large scale, and, hell, you’re still subject to the vagaries of the market. Right now, rents are dropping in Vegas because too many investors, large and small, have bought too many houses at fire sale pricing and put them out for rent. Rents are dropping, because, goes what? There’s a reason Vegas tanked and still is 70% underwater – nobody has any money! So, they’ll have enough to rent, and, (really??) maintain a house for what Dexter in Greenwich thinks is a fair deal? I don’t think so. Dexter is going to have to find a bigger fool real fast to pass this crap off in some instrument that promises more that T Bills, which you and I know, he’s trying real hard to do right now. He can’t depend on the German banks, though. The Chinese aren’t that stupid. American retirees? They don’t have any money either. We’re at the end game for that tomfoolery. Just an echo bubble, and, in five or six years, the sensible will be buying these homes at true market prices. Before that, don’t concern yourself with the noise.

  20. Hangell

    My foray into absentee landlordism began when I had to move to find work. Furnace went out in January and I had to have it replaced as that is what the contractor said needed to be done. Couldn’t inspect it myself and when they say the magic words ‘carbon monoxide’ you can’t put it off. Little repairs I used to do suddenly became major expenses. Spaghetti down the drain or hair in the sink becomes a payday for roto-rooter. My tenants were always punctual with rent when I was in town. Became less so when I was 340 miles away as they knew eviction was as much a problem for me as for them.

    No, I don’t think big investors know what they are going to be getting into trying to manage and maintain a few hundred single family homes spread out over a metropolitan area or two and there is no personal relationship between landlord and tenant.

  21. rps

    The goal is to turn the citizens of the United States into Pottersville renters. Capra’s “Its a Wonderful Life” was the David and Goliath story exposing the live burial of the working class in debt, and never having the ability to own a home. Here we are again with the same virulent capitalist mentality of underpaying labor that guarantees a life time of enormous debt and servitude to the opportunistic capitalistic pathogens, the Potters of the world.

    “Just a minute… just a minute. Now, hold on, Mr. Potter. You’re right when you say my father was no businessman. But he did help a few people get out of your slums, Mr. Potter. You… you said… what’d you say a minute ago? They had to wait and save their money before they even ought to think of a decent home. Wait? Wait for what? Until their children grow up and leave them? Until they’re so old and broken down that they… Do you know how long it takes a working man to save $5,000? Just remember this, Mr. Potter, that this rabble you’re talking about… they do most of the working and paying and living and dying in this community. Well, is it too much to have them work and pay and live and die in a couple of decent rooms and a bath? Anyway, my father didn’t think so. People were human beings to him. But to you, a warped, frustrated old man, they’re cattle. Well in my book, my father died a much richer man than you’ll ever be”

    “Potter wants to keep you living in his slums and paying the kind of rent he decides. Joe, you lived in one of his houses, didn’t you? Well, have you forgotten? Have you forgotten what he charged you for that broken-down shack? Here, Ed. You know, you remember last year when things weren’t going so well, and you couldn’t make your payments. You didn’t lose your house, did you? Do you think Potter would have let you keep it? Can’t you understand what’s happening here? Don’t you see what’s happening? Potter isn’t selling. Potter’s buying!”

    1. F. Beard

      They had to wait and save their money before they even ought to think of a decent home. Wait? Wait for what? Until their children grow up and leave them? Until they’re so old and broken down that they… Do you know how long it takes a working man to save $5,000? Jimmy Stewart’s character in “It’s a wonderful life”

      The reason a working man could not save up for a house is the same reason that he can’t save up for one now – negative real interest rates in housing. And what causes those? ans. The credit creation scheme (so-called “fractional reserve lending”) that the Jimmy Stewart character defends!

  22. dale pues

    I live in a sprawling reparto high up on the western ridge facing the pacific ocean, in Carazo, southwest of managua, nicaragua. I rent. $220 per month. It’s a nice house, a nice large house built by an architect wary of earthquakes. The electric bill runs around thirteen to fourteen dollars a month. Internet is forty, cable twenty. Garbge pick-up twice a week costs two dollars. That’s it. Oh, starting next month, the monthly bill for security will be my responsibility, about twenty dollars. The landlord takes care of the yard a couple times a month and drops off dog food for the sweet mutt out back. My “home” is in Atlanta, close to Candler Park. It’s a wooden house built in 1900 and has been remodeled, rebuilt from end to end. This project took me fifteen years. I rent out my house for $1380 per month. Taxes and insurance are $4600 a year. I take care of basic maintenance and clean the house thoroughly between tenants. If the taxes continue to increase, as well as the insurance, I will be forced to sell my house and try to finish out my days on that cash sale and the savings I managed to set aside working as a shop foreman for twenty years.

  23. vlade

    Not sure what the situation is in the States, but in the UK real estate agents already are “servicers” for the landlords. And god it’s awful – often both for tenant AND landlord.

    I was renting an apt via Foxtons (one of the most aggresive and largest agents in London) about 7 years ago, and the landlord dropped them after a month when they tried to charge him (and me) extortionate fees for “maintaining” (charging 100+ pounds for a job that took 5 minutes and required a ladder and screwdriver).

    Unfortunately, not every landlord (especially an absentee one) can/is willing to do it.

    I can imagine that Foxtons would be only very happy to act as servicer for a PE buying large blocks of appartments, raking the fees on both sides.

  24. Bill

    “The goal is not to have them pay off their debts, but to owe forever. Whatever a debtcropper owes, a wealthy creditor owns. And as a bonus, the heavier the debt burden of American citizenry, the less able we are able to organize and claim our democratic rights as citizens.”

    From citizen status , to “consumer” staus ,to debt slave status . Looks like the plan is working well.

    Now bow serf !!!

  25. MacCruiskeen

    “But there is a second major shift underway, which is a planned transfer of large number of homes into the hands of private equity landlords. Fannie and Freddie are now piloting programs for bulk sales of foreclosed home.”

    I seem to recall, Yves, that not too long ago you were skeptical that this would happen. Your argument was that geographically dispersed properties (i.e., bunches of suburban homes) would be an unattractive option for landlords. Have you changed your mind?

  26. Gordon Brooks

    We need to start re-thinking this entire concept of securitization. A contract is supposed to be an agreement between two parties, and the interests of each party are vital elements of that contract. With servicers and trustees thrown into the mix, whose interests, often completely hidden, are only in generating fees, the entire meaning of contract goes right out the window.

    We have to stop treating contracts like commodities. These are promises to perform, on both sides, not investment vehicles to be bought and sold like so many pork bellies.

    1. vlade

      Securitization can be ok.

      What’s definitely not ok is destruction of trust. Trust is the great lubricant of relationships. When relationships get replaced by contracts, the trust disappears (for why trust when you have it all specified contractually?).

      Outsourcing often works by replacing relationships with contracts, especially in the cost-driven outsourcing (which is not really cost driven, it’s bonus driven. Long term costs tend to be higher w/o relationship).

      The big question is, can there be trust in a society as large as ours? The opinions differ…

  27. Tyzao

    Without a court explicitly dedicated to complaints against renters rights, landlords will: not properly replace roofs, which will lead to widespread mold; will do all sorts of funny things with hot water, in order to save on electricity and water consumption, which generally leads to a lot of baths in buckets; and will severely cut heating and/or cooling. With this kind of a system, there can be no standard eviction, because renters will need to have the right to reduce their rent payments, based on legal precedence, for every locality across the US, which will need to be adjudicated (is that the right word?) by the aforementioned court. Pregnant women and families with small children have additional rights. So funny to see the GAGFAH mentioned here. While not perfect, they are far from the worst Consortium owner in Germany. Just try a search on the Universa. These guys had a massive fire in an apartment building, and tried getting tenants to move back into the housing block without even painting smoke stained walls. There are many, many other examples of these types of “landlords” in Germany. Can’t wait to see the American example in a climate where there are few if any protections for tenants. Going to be a nightmare at best.

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